Working Paper: NBER ID: w21261
Authors: Fernando Ferreira; Joseph Gyourko
Abstract: Utilizing new panel micro data on the ownership sequences of all types of borrowers from 1997-2012 leads to a reinterpretation of the U.S. foreclosure crisis as more of a prime, rather than a subprime, borrower issue. Moreover, traditional mortgage default factors associated with the economic cycle, such as negative equity, completely account for the foreclosure propensity of prime borrowers relative to all-cash owners, and for three-quarters of the analogous subprime gap. Housing traits, race, initial income, and speculators did not play a meaningful role, and initial leverage only accounts for a small variation in outcomes of prime and subprime borrowers.
Keywords: Foreclosure Crisis; Prime Borrowers; Subprime Borrowers; Panel Data; Negative Equity
JEL Codes: E0; G0; H0; J0; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative equity (G32) | foreclosure outcomes (G33) |
| current loan-to-value (LTV) ratios (G21) | probability of losing a home to foreclosure (G21) |
| negative equity (G32) | differences in foreclosure rates between prime borrowers and all-cash owners (G21) |
| initial leverage (Y20) | foreclosure rates (G21) |
| demographics and housing traits (R21) | foreclosure outcomes (G33) |